Please use this identifier to cite or link to this item: http://hdl.handle.net/1822/12007

TitleThe real effects of financial stress in the Euro zone
Author(s)Mallick, Sushanta K.
Sousa, Ricardo M.
KeywordsMonetary policy
Financial stress
Bayesian structural VAR
Sign-restrictions
Euro-zone
Issue date2011
PublisherUniversidade do Minho. Núcleo de Investigação em Políticas Económicas (NIPE)
CitationMALLIK, Sushanta K. ; SOUSA, Ricardo M. – “The real effects of financial stress in the Euro zone” [Em linha]. Braga : Núcleo de Investigação em Políticas Económicas, 2011. [Consult. 30 Mar. 2011]. Disponível em WWW: <URL: http://www3.eeg.uminho.pt/economia/nipe/docs/2011/NIPE_WP_12_2011.pdf>.
Abstract(s)Using two identification strategies based on a Bayesian Structural VAR and a Sign-Restriction VAR, we examine the real effects of financial stress in the Eurozone. In particular, we assess the macroeconomic impact of: (i) a monetary policy shock; and (ii ) a financial stress shock. We find that a monetary policy contraction strongly deteriorates financial stress conditions. In addition, unexpected variation in the Financial Stress Index (FSI) plays an important role in explaining output fluctuations, and also demands an aggressive response by the monetary authority to stabilise output indicating a preference shift from targeting inflation as it is currently happening in major economies. Therefore, our paper reveals the importance of adopting a vigilant posture towards financial stress conditions, as well as the urgency of macro-prudential risk management.
TypeWorking paper
URIhttp://hdl.handle.net/1822/12007
Publisher versionhttp://www3.eeg.uminho.pt/economia/nipe/docs/2011/NIPE_WP_12_2011.pdf
Peer-Reviewedno
AccessOpen access
Appears in Collections:NIPE - Documentos de Trabalho

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